Question

How do the following affect the equilibrium price and quantity? Show graphically.

A change in consumers’ tastes in favour of the product

Answer 1

When there is a change in consumers’ tastes in favour of a product, the demand for that product increases. This results in a rightward shift of the demand curve, while the supply curve remains unchanged. As shown in the diagram, the original equilibrium is at point E₀, where the initial demand curve D₀D₀ intersects the supply curve SS. The corresponding equilibrium price is P₀, and the equilibrium quantity is Q₀. Due to increased consumer preference, the demand curve shifts to the right, becoming D₁D₁. This shift leads to a new equilibrium at point E₁, where the price rises from P₀ to P₁ and the quantity increases from Q₀ to Q₁. Thus, a favourable change in consumers’ tastes causes both the equilibrium price and quantity to increase.